MR. Chaudhar V.M. Workshop on The Future of
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MR. Chaudhar V.M. Workshop on The Future of Banking organized by HMA ISB (October 30, 2004) Vepa Kamesam Former Deputy Governor, RBI Currently Chairman, IDRBTBRBNML Technology and Banking The Quintessence Nature of Banking harmonizes
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01
MR. Chaudhar V.M. Workshop on The Future of Banking organized by HMA & ISB (October 30, 2004) Vepa Kamesam
Former Deputy Governor, RBI
Currently Chairman, IDRBT/BRBNML<br>
Former Deputy Governor, RBI
Currently Chairman, IDRBT/BRBNML<br>
02
Technology and Banking The Quintessence Nature of Banking harmonizes
closely with Technology –<br>
closely with Technology –<br>
03
Pervasive Branch
Network Global Operations Complex Credit
Calculations Innovative Risk
Management Mass Transaction
& Items Processing<br>
Network Global Operations Complex Credit
Calculations Innovative Risk
Management Mass Transaction
& Items Processing<br>
04
Many Benefits of Technology Increased operational efficiency, profitability & productivity
Superior customer service
Multi-channel, real-time transaction processing
Better cross-selling ability
Improved management and accountability
Efficient NPA and risk management
Minimal transaction costs
Improved financial analyses capabilities<br>
Superior customer service
Multi-channel, real-time transaction processing
Better cross-selling ability
Improved management and accountability
Efficient NPA and risk management
Minimal transaction costs
Improved financial analyses capabilities<br>
05
Focus aspects of Commercial Banking now are: Core
Banking (CBS) ATMs Card
Management Any Branch Banking Document
Management Risk
Management Resource
Management MIS & Intranet CRM Corporate
Network Electronic
Banking POS Terminals and Cash dispenser BANK’S BUSINESS BANK’S BUSINESS RAISING DEPOSITS LOANS & MISC. SERVICES<br>
Banking (CBS) ATMs Card
Management Any Branch Banking Document
Management Risk
Management Resource
Management MIS & Intranet CRM Corporate
Network Electronic
Banking POS Terminals and Cash dispenser BANK’S BUSINESS BANK’S BUSINESS RAISING DEPOSITS LOANS & MISC. SERVICES<br>
06
Financial Technology Infrastructure Data Center to host servers for:
CBS
ATM/Financial Switch
Internet Banking
DW/DM/CRM/MIS etc.
Back-office Application
E-mail Servers, Internet Server,
Enterprise-wide Network & Networking Equipment
Security Systems
Systems at Branches/RO/ZO/CO Depts.
Supporting Systems
Disaster Recovery Site & Business Continuity<br>
CBS
ATM/Financial Switch
Internet Banking
DW/DM/CRM/MIS etc.
Back-office Application
E-mail Servers, Internet Server,
Enterprise-wide Network & Networking Equipment
Security Systems
Systems at Branches/RO/ZO/CO Depts.
Supporting Systems
Disaster Recovery Site & Business Continuity<br>
07
Technology – A Differentiator Technology is indeed a differentiator not only in terms of competitive advantage, but also in terms of administrative and back-end processes….
But…due to rapid technology deployment in Indian banking sector, the “haves” and “have-nots” gap is all set to narrow quickly.<br>
But…due to rapid technology deployment in Indian banking sector, the “haves” and “have-nots” gap is all set to narrow quickly.<br>
08
Technology Differentiation Fades Gradually….<br>
09
How Long a Differentiator? Then….can technology be enough of a differentiator?
Any new technology or technology-enabled process can act as a differentiator or a competitive edge for some level of time.
After that time, the technology still has to be adopted as a “necessity” and as a cost of doing business
Thanks to shortening technology life cycles, it would be short sighted to assume that technology would be a long term differentiator…<br>
Any new technology or technology-enabled process can act as a differentiator or a competitive edge for some level of time.
After that time, the technology still has to be adopted as a “necessity” and as a cost of doing business
Thanks to shortening technology life cycles, it would be short sighted to assume that technology would be a long term differentiator…<br>
10
Elements of Technology as a Differentiator Scalability &
Flexibility Efficient utilisation, mgmt Process enabling Utility to customer Support
Skills For Long-Term Differentiation<br>
Flexibility Efficient utilisation, mgmt Process enabling Utility to customer Support
Skills For Long-Term Differentiation<br>
11
Issues with Customers Not only employees, there are problems for customers too when a new technology arrives…
The major challenges –
Comfort levels
Security and trust issues
Convenience factor
Getting rid of myths
Migration from existing to new systems
Changing the habits<br>
The major challenges –
Comfort levels
Security and trust issues
Convenience factor
Getting rid of myths
Migration from existing to new systems
Changing the habits<br>
12
Electronic Banking ATM Head Office Branch Banking Branch 1 Branch 2 Branch 3 Branch 4 Branch 5 Branch 6 Branch n<br>
13
Technology Acquisition Inappropriate technology purchases can be the root of all problems…
The Bank management has to:
Give thought to the utilization rate
Avoid “knee-jerk” reactions (“they have done it…I should also do it”)
Be impartial in technology decisions (“I like that technology…I want it”)
Understand where the solution will fit AND where it won’t!
Assess the strengths & weakness of solution
And seek answer to “are we ready for it?”<br>
The Bank management has to:
Give thought to the utilization rate
Avoid “knee-jerk” reactions (“they have done it…I should also do it”)
Be impartial in technology decisions (“I like that technology…I want it”)
Understand where the solution will fit AND where it won’t!
Assess the strengths & weakness of solution
And seek answer to “are we ready for it?”<br>
14
Differentiation is attained not achieved just through technology, it is gained in the way the technology is selected, implemented and utilised<br>
15
Regulation and Supervision – The Challenge Challenge of Technology:
New markets, products, services, delivery channels
Opened up a market for “risks” – derivatives
Challenge of financing tech firms & IT innovation
all have implications for the stability of banks and of the economy
The Opportunity
Regulators have new tools
Focus of all recent financial sector reforms
Emergence of non-intrusive, focused supervision
…with a view to prevent frauds and disturbances to financial stability<br>
New markets, products, services, delivery channels
Opened up a market for “risks” – derivatives
Challenge of financing tech firms & IT innovation
all have implications for the stability of banks and of the economy
The Opportunity
Regulators have new tools
Focus of all recent financial sector reforms
Emergence of non-intrusive, focused supervision
…with a view to prevent frauds and disturbances to financial stability<br>
16
Technology and Banking Supervision THE RBI RESPONSE Offsite Supervision & Monitoring
OSMOS
COSMOS (Non banking Financial Companies / Development Financial Institutions)
UBD Soft
Credit Information Bureau (A joint venture between Housing Development Finance Corporation Ltd., State Bank of India, Trans Union International Inc. & Dun & Bradstreet Information Services India Pvt. Ltd.)
Will be covered in detail by Speaker Dr. T.V. Gopalakrishnan<br>
OSMOS
COSMOS (Non banking Financial Companies / Development Financial Institutions)
UBD Soft
Credit Information Bureau (A joint venture between Housing Development Finance Corporation Ltd., State Bank of India, Trans Union International Inc. & Dun & Bradstreet Information Services India Pvt. Ltd.)
Will be covered in detail by Speaker Dr. T.V. Gopalakrishnan<br>
17
Currency Management and Technology – Opportunities Galore Currency Management - a formidable task in India given…
the geographical size, the volume and value of notes and coins in circulation, preference for cash and currency handling practices
...but technology offers immense opportunities to improve performance
RBI’s The Clean Note Policy (1999)
Establishment of 2 state of the art currency presses
Technology driven anti counterfeit measures
48 fully automated Currency Verification & Processing Systems
21 Shredding and Briquetting Machines<br>
the geographical size, the volume and value of notes and coins in circulation, preference for cash and currency handling practices
...but technology offers immense opportunities to improve performance
RBI’s The Clean Note Policy (1999)
Establishment of 2 state of the art currency presses
Technology driven anti counterfeit measures
48 fully automated Currency Verification & Processing Systems
21 Shredding and Briquetting Machines<br>
18
Technology & Monetary Systems Technology has:
Transformed the conduct of the payment and settlement system
Set the stage for an unprecedented growth in financial activity across the globe
Rendered more vulnerable the domestic payment system and financial stability to international “shocks”
… making the conduct of monetary policy more complex and prone to implementation and operational risks<br>
Transformed the conduct of the payment and settlement system
Set the stage for an unprecedented growth in financial activity across the globe
Rendered more vulnerable the domestic payment system and financial stability to international “shocks”
… making the conduct of monetary policy more complex and prone to implementation and operational risks<br>
19
The Opportunities –
The proliferation of IT has also set the stage for improving and managing risks in payment systems
Electronic Trading Systems
DVP/PVP
RTGS
Secured Netting Systems
The growth of the Central Counterparty (CCP)
Continuous Linked Settlement Technology & Monetary Systems<br>
The proliferation of IT has also set the stage for improving and managing risks in payment systems
Electronic Trading Systems
DVP/PVP
RTGS
Secured Netting Systems
The growth of the Central Counterparty (CCP)
Continuous Linked Settlement Technology & Monetary Systems<br>
20
IT and Payment and Settlement Systems<br>
21
RBI
INITIATIVES
IN PAYMENT
&
SETTLEMENT
SYSTEMS<br>
INITIATIVES
IN PAYMENT
&
SETTLEMENT
SYSTEMS<br>
22
RBI Initiatives in Payment and Settlement Systems (1) The IDRBT
Network Externalities
The Indian Financial Network (INFINET)
Messaging Solutions
The Structured Financial Messaging System (SFMS)
Security
Public Key Infrastructure
IDRBT CA
National Financial Switch
Inter Bank Payment Gateway<br>
Network Externalities
The Indian Financial Network (INFINET)
Messaging Solutions
The Structured Financial Messaging System (SFMS)
Security
Public Key Infrastructure
IDRBT CA
National Financial Switch
Inter Bank Payment Gateway<br>
23
Financial Networks INFINET<br>
24
Structured Financial Messaging System<br>
25
PKI Hierarchy<br>
26
IP Address:202.138.123.68
Subnet Mask: 255.255.255.254
Location: Mumbai CashNet NFS CONNECTIVITY with Existing Consortiums & Individual Banks National Financial Switch &
E- Payment Gateway ISDN Primary Link
Backup Link Broad Band VSAT Bank 1 Bank N<br>
Subnet Mask: 255.255.255.254
Location: Mumbai CashNet NFS CONNECTIVITY with Existing Consortiums & Individual Banks National Financial Switch &
E- Payment Gateway ISDN Primary Link
Backup Link Broad Band VSAT Bank 1 Bank N<br>
27
RBI Initiatives in Payment and Settlement Systems (2) A Real Time Gross Settlement System
Reduction of systemic risk in inter bank payment systems
To be implemented by the year end
The Centralised Funds Settlement System
Facilitating effective liquidity management
The Negotiated Dealing System
A modern electronic dealing platform for gilts
Enabling Straight Through Processing<br>
Reduction of systemic risk in inter bank payment systems
To be implemented by the year end
The Centralised Funds Settlement System
Facilitating effective liquidity management
The Negotiated Dealing System
A modern electronic dealing platform for gilts
Enabling Straight Through Processing<br>
28
CFMS Settlement
Accounts IFTP Strip & Store
Processes IAS SSS Intra Day
Liquidity RBI Payments and Actg. Entry Interface INFINET NSS Participant’s
Interface Participant’s
Interface Participant’s
Interface Real Time
Gross Settlement<br>
Accounts IFTP Strip & Store
Processes IAS SSS Intra Day
Liquidity RBI Payments and Actg. Entry Interface INFINET NSS Participant’s
Interface Participant’s
Interface Participant’s
Interface Real Time
Gross Settlement<br>
29
RTGS Scenario 90 banks have implemented it
3-4 more to implement in a fortnight
Customer transactions have already started
Total volumes – Transactions on average Rs.20,000 crores per day settled continuously from the time of opening of markets
Guarantee settlement fund<br>
3-4 more to implement in a fortnight
Customer transactions have already started
Total volumes – Transactions on average Rs.20,000 crores per day settled continuously from the time of opening of markets
Guarantee settlement fund<br>
30
RBI Initiatives in Payment and Settlement Systems (3) The Securities Settlement System
Providing centralized depository and settlement services
Seamlessly integrated with the NDS and RTGS Systems
The Clearing Corporation of India
Secured netting services with central counterparty arrangements
G-Sec and Forex segments
Elimination of settlement risks with liquidity saving elements<br>
Providing centralized depository and settlement services
Seamlessly integrated with the NDS and RTGS Systems
The Clearing Corporation of India
Secured netting services with central counterparty arrangements
G-Sec and Forex segments
Elimination of settlement risks with liquidity saving elements<br>
31
Smart Cards – The Future Multi-application Smart Card
Channel of the future
Pilot project started
Pilot Project funded by MCIT, Govt. of India
The project is in progress in partnership with IDRBT, IIT Bombay, and Banks in India<br>
Channel of the future
Pilot project started
Pilot Project funded by MCIT, Govt. of India
The project is in progress in partnership with IDRBT, IIT Bombay, and Banks in India<br>
32
RBI and Customer Service…(1) Dissemination of information
The RBI website
Multiple Delivery Channels
Coin & Note Dispensing Machines
For the general public
Interactive Voice Response System
For banks and financial institutions
Web server
For government customers
On the anvil….
A secured web server
SFMS/email based communication with customers<br>
The RBI website
Multiple Delivery Channels
Coin & Note Dispensing Machines
For the general public
Interactive Voice Response System
For banks and financial institutions
Web server
For government customers
On the anvil….
A secured web server
SFMS/email based communication with customers<br>
33
RBI and Customer Service...(2) Improvements in payment and settlement systems
MICR Clearing
Enabling faster clearing of cheques
Cheque Truncation & E-Cheques
On the drawing board
ECS/EFT
Enabling T+2 settlement of our equities market
National EFT
Enabling T+0 settlement of all customer funds transfer transactions<br>
MICR Clearing
Enabling faster clearing of cheques
Cheque Truncation & E-Cheques
On the drawing board
ECS/EFT
Enabling T+2 settlement of our equities market
National EFT
Enabling T+0 settlement of all customer funds transfer transactions<br>
34
Technology Vision of the RBI<br>
35
Issues in Implementation
“Less than 10% of failures are due to technical snags – most are due to poor management and implementation” Resistance to change
Overlooking process reengineering
Project management
Dedicated project teams
Change management
Policies
People Skills & Training
Basic Infrastructure – telecom, power
Security
Privacy & confidentiality
Legal and regulatory issues<br>
“Less than 10% of failures are due to technical snags – most are due to poor management and implementation” Resistance to change
Overlooking process reengineering
Project management
Dedicated project teams
Change management
Policies
People Skills & Training
Basic Infrastructure – telecom, power
Security
Privacy & confidentiality
Legal and regulatory issues<br>
36
Pre-requisites for Technology<br>
37
The pre-requisites for Technology Planning for disasters
Increased operational risk
Business Continuity Planning
Business Process Re-engineering
Human Resource Empowerment<br>
Increased operational risk
Business Continuity Planning
Business Process Re-engineering
Human Resource Empowerment<br>
38
Getting Personal with Personnel People represent the most precious asset
Large employee base – largely untrained. Training scope & methodology?
VRS to balance costs. Break even? Down sizing?
Bring in young blood
Campus recruitment
Re-defining & designing jobs. Career paths?
Specialist Vs. Generalist
Attrition of trained employees to IT industry / other banks. Competitive incentives?
Re-location of personnel. Union issues?
Retrained personnel. Morale of employees?<br>
Large employee base – largely untrained. Training scope & methodology?
VRS to balance costs. Break even? Down sizing?
Bring in young blood
Campus recruitment
Re-defining & designing jobs. Career paths?
Specialist Vs. Generalist
Attrition of trained employees to IT industry / other banks. Competitive incentives?
Re-location of personnel. Union issues?
Retrained personnel. Morale of employees?<br>
39
Need for Training All these developments call for extensive, continuous training
Current and future technology implementations call for at least 20% of officers specialise in IT
Hence need for specially skilled people – a mix of:
System administrators
Application managers (knowledgeable about both banking and technology)
Technology managers (who form the core team of technology professionals).<br>
Current and future technology implementations call for at least 20% of officers specialise in IT
Hence need for specially skilled people – a mix of:
System administrators
Application managers (knowledgeable about both banking and technology)
Technology managers (who form the core team of technology professionals).<br>
40
Security Risk Management Security is about…cementing the weak link
Strong security measures (physical & data security) plus disaster recovery are essential
Authentication of e-banking customers and accountability for e-banking transactions
Segregation of duties, proper authorization controls etc.
Physical security measures
Graded access control, Iris & X-ray scanners, CCTV & detection systems, hotline and wireless links, fingerprint readers, concealed cameras, various sensors, bollards, boom barriers etc.
Disaster Management and Disaster Recovery sites<br>
Strong security measures (physical & data security) plus disaster recovery are essential
Authentication of e-banking customers and accountability for e-banking transactions
Segregation of duties, proper authorization controls etc.
Physical security measures
Graded access control, Iris & X-ray scanners, CCTV & detection systems, hotline and wireless links, fingerprint readers, concealed cameras, various sensors, bollards, boom barriers etc.
Disaster Management and Disaster Recovery sites<br>
41
How to Ensure Security??-A Framework Assess Detect Respond Protect<br>
42
IDRBT’s Solutions for Security Risk Management (SRM) Risk Assessment Gap Analysis IS Audit Awareness by Training Policy & Procedures Development Implementation SRM for
Banks PKI INFINET<br>
Banks PKI INFINET<br>
43
Technology Related Issues
People Related Issues – Reskilling
Monetary systems, Efficient Telecommunication & Infrastructure to Drive Banking on Real-time Basis
Risk Management & Physical Security At a Glance…….<br>
People Related Issues – Reskilling
Monetary systems, Efficient Telecommunication & Infrastructure to Drive Banking on Real-time Basis
Risk Management & Physical Security At a Glance…….<br>
44
The future will be not be more of the same…
… we need to be ready.. Thank You<br>
… we need to be ready.. Thank You<br>